Three Steps to Building (or Rebuilding) a Solid Personal Credit Score

A business owner’s personal credit score impacts his or her ability to get a small business loan, a line of credit, or even trade credit with suppliers. If your profile is less than perfect, here are three things you can start doing today that will help you build a solid score. Remember, although some of what you do today can hurt your score tomorrow, a bad credit score doesn’t happen overnight—neither does building a good score.

1. Make sure the credit bureaus have accurate information: It’s not uncommon to find errors on your personal credit report. What’s more, left uncorrected or ignored, those errors will pull your score down. Fortunately, all three of the major credit bureaus have a dispute process and want to ensure their information is accurate. AnnualCreditReport.com is the only authorized source for your free annual credit report, but for a modest fee you can access your report directly from Experian, TransUnion, or Equifax, the three big players.

As you look at your report, make sure all your personal information is correct. Double-check to ensure that every credit account listed is actually yours. Make sure the information your creditors have reported is accurate too. If you see errors, notify the credit bureau (following their outlined dispute process) as quickly as possible. Be prepared to show evidence for anything you feel is inaccurate. The credit bureaus want to make sure they have accurate information for you, but they won’t be able to proceed unless you can verify there is an error.

If there are circumstances like a prolonged illness, a divorce, or the death of a spouse that may have contributed to a poor credit score, all three of the major reporting bureaus allow you to append a 100-word statement to your report that explains the extenuating circumstances.

2. Get current on late payments and reduce credit card balances: Although it may be obvious why you should get current on your late payments, it’s often easier said than done. Nevertheless, every payment you miss or pay late gets reported to the credit bureau and will pull down your personal score.

The need to reduce your credit card and other revolving loan balances might not be so obvious, but it’s also very important. 30 percent of your score takes into account the amount of debt you use vs. your available credit, the number of accounts you have with balances, and the amount owed across the different balances. A good rule of thumb is to shoot for around 15 percent. Keeping your personal credit cards maxed out is never a good idea.

3. Use credit prudently: This is another suggestion that might sound obvious, but there’s a little more to it than keeping your credit balances low. First, don’t cancel any of your current credit accounts. The length of your credit history is important and older accounts help your score—and amount to roughly 15 percent of your score.

It’s also important to demonstrate that you can use different types of credit and accounts for 10 percent of your score. In other words, don’t always use the same credit card.

NOTE: If you use a business credit card for travel or other expenses, be aware that if your company makes prompt payments it doesn’t do anything for your score, but if they make the credit card payments late, it could negatively impact your personal score.

Beware of anyone who claims to have a quick fix for a bad credit report. There is no quick fix. What’s more, it is unlawful to charge up front for credit repair services. Additionally, using a different social security number or creating a different alias could land you in legal hot water.

Following these three tactics will help you build a solid personal credit profile or help you rebuild a weaker profile—but remember, nothing happens overnight.